Strategy: Bond Rotation “Sleep Well”

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This topic contains 55 replies, has 25 voices, and was last updated by  Alexander Horn 4 months, 2 weeks ago.

Viewing 15 posts - 1 through 15 (of 56 total)
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  • #12111

    Alexander Horn
    Keymaster

    Support and discussion thread for the strategy.

    #14088

    Anonymous

    Hi Alexander
    I am now logged-in
    It is official.

    So, on the bond rotation strategy-or all others for that matter does your modeling anticipate any changes due to the latest Japanese recession (Nov 17, 2014)?

    I currently love EDV but I have no desire to be “lost in love”

    Thanks
    Anna

    #14099

    Frank Grossmann
    Keymaster

    Hello Anna

    None of the strategies invests in the Japanese stock market. In the Global Market Rotation we have EPP which is the MSCI Pacific, but also this Index excludes Japan. In fact Japan is excluded in nearly all global indexes, because this market is too much manipulated by the influence of Japanese politics.

    Best regards
    Frank

    #14558

    Michael Cave
    Participant

    How do you expect this bond strategy to perform during a rising interest rate environment?

    #14559

    Frank Grossmann
    Keymaster

    The bond rotation strategy includes very different types of bonds. This goes from Treasuries (TLH) up to corporate bonds (CWB) which behave like stock market ETFs. So, I think that also in an environment of rising rates, this strategy should be able to produce positive returns.

    #15469

    Supal Patel
    Participant

    Hello,

    With recent changes in “Sleep well” strategy to use adaptive allocation and change the ETF selections, I feel like its same as Global Market Rotation strategy – Enhanced. Both are currently invested 50% stocks / 50% long term bonds. I currently invest in both these strategy to diversify and reduce the risk but with recent change I feel that diversification is no longer there.

    Please let me know if I am wrong here or if I should switch to different strategy to diversify.

    #15482

    Frank Grossmann
    Keymaster

    No, I think like this BRS and GMRS are much better hedged or diversified than before.
    Before it was well possible that BRS and GMRS have been all invested in ETFs with a positive correlation to the stock market. Something like CWB, JNK + MDY.
    Correlations between ETFs had no influence on the investment. Also when invested in a hihg volatile ETF like ILF, the overall allocation has not been modified.
    Today GMRS would automatically adjust the treasury part to reduce the high ILF volatility, and the same happens for the BRS strategy.

    Now you just have to add the treasuries together and buy only once (EDV= 1.5xTLT) and you are perfectly protected.

    #15704

    wes
    Participant

    Frank you recently revised the bond portfolio with a new mix, deleting old and adding new ETFs.

    Can we see what the results would be as the current reported results of the old strategy are now completely different and meaningless? Why do you even post them as it confuses the membership?

    I find when such significant changes occur to a portfolio any real time credibility of current “Algo” design becomes worthless. This has to have a psychological impact on the investor sticking to the plan. When you see strategies such as the ‘permanent portfolio’ its allegiance and following is the fact that it does not change regardless of return.

    #15824

    daniel morton
    Participant

    Hello,

    Are you able to backtest the bond rotation further back? either with its current holdings or similar proxy which has prices before that period. thanks.

    Daniel

    #16099

    Frank Grossmann
    Keymaster

    I think it is absolutely necessary to review a strategy from time to time and do changes, if you can validate an improvement. The only thing which is fixed, are the monthly returns in the “return & investment tables” section. We would never update these to an improved backtest.
    The only thing I would not change is the main characteristics of the bond strategy. This is, switching between a mix of negatively correlated bonds to maximize return and minimize volatility and drawdowns.
    I even think the permanent portfolio is a good example to show why it is important to improve strategies. Sure you could just use the original PP buy and hold strategy with 25% GLD, 25% SPY, 25% TLT and 25% cash, but using a modern adaptive strategy with the same PP ETFs, you can get twice the return to risk ratio.
    The new adaptive bond strategy has been very well backtested and compared with the old strategy and the result is very clear that we should switch to the new strategy. We will publish a complete paper on this soon.
    So, all our strategies can change slightly over time, because the markets change, we get new ETFs or even only because also our team learns to use new ways to execute these strategies.

    #16116

    Alexander Horn
    Keymaster

    We have backtested this strategy using mutual funds as proxies, and are currently preparing a post to be published within the next days. Will keep you posted on any update.

    #16195

    wigmoney
    Participant

    Hello..

    When you say by, “Now you just have to add the treasuries together and buy only once (EDV= 1.5xTLT) and you are perfectly protected.” Can you give me an example.. I just started using the Bond, Market and Sector strategies and also noticed the duplication of the bond hedge.. TLT/EDV.. So if I am using $35,000 for my EDV % in the Market Strategy then I need to by $52,500($35,000×1.5) of TLT for the same exposure?

    Thanks..

    #16197

    Alexander Horn
    Keymaster

    Yes, this is neither intuitive nor easy to calculate across different strategies. We thought about making an excel sheet available, but now rather opted to kick-off what we call our “gold version”, where the site will allow you to choose weightings by strategy and options like the EDV/TLT replacement and then do the math for you.. Will take some weeks, but hope this helps medium term…. OMG, another teaser we’ll have to deliver on :-)

    But for the time being, here an example in excel. Look at the formulas on how to “rescale” the capital requirement. Keep in mind that we consider EDV like a ‘leveraged’ TLT, so you either need more capital, or rescale the overall position to maintain the “mix”. This ‘leveraged’ is technically not quite right, but it demonstrates the effect you’ll have when replacing EDV by TLT due to ther different duration and coupon.

    #16213

    wigmoney
    Participant

    Thanks Alex..might just leave as shown for each strategy and not combine..Not sure I want to commit extra capital or loose the leverage.. Only 1 or 2 more trades per month..

    Really appreciate you showing the example…It made it a lot easier to see….

    Scott

    #16293

    wes
    Participant

    Very good response ..Thank you

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